International sales rescue Apple from US retail slump

Despite rough economic conditions in the US that are hitting the retail sector particularly hard, Apple released record shipments of iPods and claimed the second-highest quarter of Mac sales in the company's history, thanks to strong international growth, retail strength, new MacBooks, and diversification from Apple's core business.

Analyst Kathryn Huberty of Morgan Stanley has been bemoaning "the current macroeconomic environment" in her pessimistic outlook for Apple for some time now. Huberty predicted sales of only 16 million iPods the winter quarter of 2008, but Apple actually sold 22.7 million. That's a new record for the company, and comes at a particularly improbable point a year after analysts tanked the company's stock with dire warnings that Apple's retail sales would collapse with the slowing economy.

While US iPod sales were down slightly, Apple now has strong sales fueling stellar growth globally. Apple COO Tim Cook noted in the company's quarterly financial report conference call that that "US iPod sales contracted, at the unit level, 3% year over year," adding that "all the growth you see in our numbers, 22.7%, was all international."

Mac sales were also up, due in part to Apple's global reach. However, the PC market in general has actually contracted, making Apple's growth particularly noteworthy. Cook noted, "When you think about the macroeconomic environment, I think it's a great result. Â*We grew 9% on a sale basis and we did take the channel inventory down some. The market has projected from IDC that the worldwide market actually contracted. Â*So you're comparing 9% to a negative number so I feel very happy about that."

Cook added, "Mac sales were the second-highest in our history and only surpassed by 3% in our best quarter. The October year over year data on the Mac is very good and the portables all quarter as a matter of fact led to this which is a pretty stunning number; 34% year over year increase on portables despite the environment. Â*International vs the US, international on Mac was much stronger than the US. International growth was 16% on Macintosh year over year, 2% in US. Â*We saw several countries over 20%."

Retail impact on international sales

Apple CFO Peter Oppenheimer added, "The retail performance outside the US was a bit stronger similar to what we saw in other parts of the business as Tim [Cook] alluded to in David's question. Â*We think our retail stores are helping us in each of our geographies, they are a great place for new customers particularly those new to the Mac to come experience our products and understand them. Â*

Oppenheimer added, "Some choose to buy in our stores, some choose elsewhere, we're find with either. Â*We just want to make sure the Macs have a great point of sale for customers to experience them, and that's why we're opening the stores. Â*We plan to open about 25 in financial year 2009 and half will be international."

Earlier in the call, Cook had also noted plans to expand Apple's retail store network with 25 additional stores. "Half will come internationally and Ron [Johnson, senior vice president of Apple's retail operations] and his team are continuing to be very selective with real estate and won't take a bad site."

Cook said, "Our stores are amazingly productive and providing outstanding service to our customers. The environment around us was a bit tough but the stores performed very well, we are very confident in our stores and the asset we're building."

MacBook mania

One specific element fueling Mac sales was the new unibody MacBook line refresh. "We felt people were delaying purchases on rumors of the new portable," Cook said. "We saw again a spike at the end of the quarter, not as strong as iPods, but created by the economic environment and consumer reaction to it."

A year ago, Apple's Mac sales were driven by the newly redesigned iMac, which resulted in a blockbuster 53% growth in Apple's desktop sales. That model wasn't refreshed this fall, focusing all attention upon the new portables. The result was a major shift in Apple's business from desktops to notebooks. Apple noted that 71% of its Macs sold were notebooks, the highest portable mix the company has ever seen.

At a time when the industry seems enamored with low cost netbooks, Apple has been skimming of the cream of the much more profitable notebook market, and delivering a more sustainable product that has customers returning for software purchases and training. Most netbooks are limited in the software they can run because of their physical and performance restrictions.

Historic Apple markets down

Without the push into the premium and consumer notebook territories, a drive that Apple began during the post dotcom bubble recession at the beginning of the decade, Apple would likely have found itself in trouble during the current economic downturn. Apple's higher end desktop machines, while popular among designers and others that made up Apple's historic core of customers, are now a relatively small part of Apple's overall business.

Cook said, "the Mac Pro segment of our desktop business isn't large, it's primarily iMac. The Pro segment was down year over year as you might expect because small businesses are cutting back on expenditures in this current economic climate."

Another historic market strength for Apple has been education, which is being hit hard as governments slash budgets in response to lower tax revenues caused by the downturn. Cook noted, "if you look at our results last quarter we were down 6% year over year in total and if you look at the K-12 total component of that, more sensitive to state budgets, down 12% year over year."

Cook added that there is "very significant funding uncertainty in this environment. State budget shortfalls are almost everywhere. Â*39 out of the 50 states have some sort of shortfall. Â*K-12 in Q4 was weak, we don't forecast individual markets but we don't see this picking up until there's a huge infrastructure outlay and hopefully with the new president we will get some of that underway."

I wish someone would have pointed it out to Apple that maybe your Pro and iMac sales were down so much because you failed to update the machines. It isn't all transition to notebook machines... Look what happened last year when they actually updated the iMac. I'm just glad I bought a bunch of AAPL early today.

Don't hold your breath there buddy... there will be plenty of WHINERS & COMPLAINERS out there soon enough to tell us faithful how Apple is totally blowing it by not doing something right and how they are totally dropping the ball by not providing that one thing that would "save" the company.

Unibody notebooks too pricey?? Guess they are not.
Netbooks?? - Guess Apple needs no stinkin' netbooks.
No Firewire? Hmm... guess it wasn't needed.
Glossy Displays will never sell??? - Hmm.. guess they're selling.
iPods are on the way out?? - Sure, right into the consumers pockets...
iPhones are oppressive/no, copy-paste?? - Hmm... Guess most folks don't care.
Apple is a premium company and that will be their downfall.... Hmmm... they are still here?!

I'm not saying Apple is perfect. Far from it. However it is funny to see no matter how many times Apple proves the skeptics wrong, the whiners still seem find something else to b***h about.

But that's okay. To cut the whiners some slack, please leave your comments here between the type of comments appropriate to you:

I wish someone would have pointed it out to Apple that maybe your Pro and iMac sales were down so much because you failed to update the machines. It isn't all transition to notebook machines... Look what happened last year when they actually updated the iMac. I'm just glad I bought a bunch of AAPL early today.

If they update the iMac and Mac Mini, I'll buy one of each...

Only hope that the rumors about the double hd Mac Mini and the quad core iMac are true!

The only PC in my house is sharing the internet, I finally got it to work but just move the mouse and it reboots...
Some times I thing it is a feature from XP!

Well... Ford, one of the big 3 did the same. Their sales are greater internationally as Apple's.
It will happen with any other brand/company that has its roots in USA and their products around the globe.

LoL, please. Is kind of idiotic to think that sales in USA will be bigger than the REST OF THE WORLD!!!

Did you have to ruin what would have been a good, insightful comment by peppering it with and ending it with a series of ad hominem fallacies? It would have been a better post.

Normally, I would agree with you. However, in this particular case I believe the momentary lapse in willpower got the better of me. After reading such incredible negativity from people on this site for weeks (months?) about how terrible Apple is, I just could not help it.

But it seems the vocal critics have left the building for they are nowhere to be seen. It's nice to have the forum a little more quiet from all the static. They are probably having dinner at the Humble Pie restaurant down the road.

I wish someone would have pointed it out to Apple that maybe your Pro and iMac sales were down so much because you failed to update the machines. It isn't all transition to notebook machines... Look what happened last year when they actually updated the iMac. I'm just glad I bought a bunch of AAPL early today.

No kidding! Imagine their sales if they actually had updated the Mini and iMac by now, and/or perhaps finally released a mid-tower! The only place I'll cut them some slack is the Mac Pro since the dual-processor Nehalem Xeons aren't ready yet, and I know how much you Mac people would bitch if they had updated the secondary components for christmas only to release a brand new Nehalem MP in spring!

Most people who have spent any significant time in the PC world is used to immediate availability of the newest products and constant turnover of configurations... Although I've been around the Mac world as well for awhile, it still frustrates the hell out of me when Apple uses the same components for a year or more!

Well... Ford, one of the big 3 did the same. Their sales are greater internationally as Apple's.
It will happen with any other brand/company that has its roots in USA and their products around the globe.

LoL, please. Is kind of idiotic to think that sales in USA will be bigger than the REST OF THE WORLD!!!

Ford has been strong in Europe lately, thanks to very positive reaction to the new-generation Fiesta and Ka models that went on sale last fall.

I do think Apple will be stronger once the new iMacs and Mac Pros with the new quad-core Intel CPU's arrive in April.

Mac Pro sales are low not because they're limited interest in such a computer. As someone mentioned earlier, not updating the machine doesn't help. But really, with the new Nehalem chips, who needs a dual processor system anymore? It's diminishing returns for a lot more money. Not that they should get rid of dual CPU, systems, but Apple needs a true desktop class tower ($1500) to fill the huge hole in their lineup.

Ford has been strong in Europe lately, thanks to very positive reaction to the new-generation Fiesta and Ka models that went on sale last fall.

I do think Apple will be stronger once the new iMacs and Mac Pros with the new quad-core Intel CPU's arrive in April.

Apple will be stronger simply cause their product line appeals to a lot of people around the globe, everyone wants to "be cool" and have expensive toys.
Once they experience the products its just natural to them to stick with the brand and buy more Apple stuff.
You are right with the new iMacs, many would love to have a quadcore iMac. I think the Mac Pro's are still ok, they only lack the latest generation of video cards but not so many use that kind of power.

Anyone with some knowledge and a few extra bucks can pimp a Mac Pro with more ram and a couple of Ati's 3870 that will rock their world for sure.
People that aim at Mac Pros don't change them the next year or the next. Most of them stick with them until it dies.

I think the Mac Pro will continue to shrink as a percentage of their desktop sales simply due to the fact that the iMac processor is powerful enough to do most everything that the average consumer needs it to do. The Mac Pro will become more and more of a professional line - not even prosumer any more.

Ford has been strong in Europe lately, thanks to very positive reaction to the new-generation Fiesta and Ka models that went on sale last fall.

I do think Apple will be stronger once the new iMacs and Mac Pros with the new quad-core Intel CPU's arrive in April.

One could argue that Ford is popular over there because they sell good cars over there. You can't buy those cars in the US. Even the ones with the same names use a difference chassis. So I'm not sure it's comparable.

I think someone needs to do a global map color-coded by local Apple market share to offer more insight into Apple's global penetration. The US economy is huge (even now), so it's hard to judge how lopsided 50% domestic sales are.

I think the Mac Pro will continue to shrink as a percentage of their desktop sales simply due to the fact that the iMac processor is powerful enough to do most everything that the average consumer needs it to do. The Mac Pro will become more and more of a professional line - not even prosumer any more.

Well, part of that depends on how far Apple starts pushing the envelope. Microsoft's photosynth stuff is pretty impressive, and I could imagine a lot of that stuff coming down to consumer-level software at some point. But Apple doesn't appear to be developing much that will push the boundaries of their machines, and they can't necessarily depend on Microsoft to port their stuff to MacOS X.

I think the Mac Pro will continue to shrink as a percentage of their desktop sales simply due to the fact that the iMac processor is powerful enough to do most everything that the average consumer needs it to do. The Mac Pro will become more and more of a professional line - not even prosumer any more.